SBA: U.S. Slipping in Entrepreneurship

A new study says large companies and a slowdown in the tech sector are to blame.

Tweet

The U.S. is no longer tops in the world for entrepreneurship -- and large companies are partly to blame, concludes a new Small Business Administration study released Thursday.  

The report – titled "Global Entrepreneurship and the United States" – compares U.S. entrepreneurship and performance against 70 other countries. It found that large companies account for an ever-increasing chunk of business activity, which "made it harder to new businesses to get started and for existing ones to prosper," study authors Zoltan Acs and Laslo Szerb wrote.

The U.S. ranked a respectable third overall, behind Denmark and Canada. Additionally, the U.S. still ranks first for entrepreneurial aspirations, or the degree to which entrepreneurial activity is directed toward innovation, high growth, and globalization. However, it comes in at No. 6 for entrepreneurial attitudes -- how the population thinks about entrepreneurs, opportunity potential and the risk of failure. The U.S. has also slumped to No. 8 for entrepreneurial activity, defined by this study as technology firms created to respond to business opportunities in a competitive environment.
 
The authors found the U.S.'s relatively low score on entrepreneurial activity "a surprise and a possible cause for concern."

"It is an indicator that over the last decade the United States may have been lagging behind in terms of opportunity startups and quality of the workforce, as well as its activities within the tech sector," Acs and Szerb wrote. "It is not just that the rest of the world has caught up, the United States seems to have abandoned [the tech sector]."

Why the slowdown in the sector? The bursting of the dotcom bubble, plus the September 11 terrorist attacks, which caused the U.S. to roll up the welcome mat for skilled workers from other countries. And while the U.S. was closing its doors, other countries "have been more pragmatic by giving strong incentives to attract educated, skilled workers to their shores – whether doctors, engineers, or academic researchers – and to keep them there with offers of residency and citizenship," the study says.

It doesn't help that there's less cultural support for entrepreneurship, which means the "best and the brightest individuals" bypass entrepreneurship for another profession. (The odds that the average American knows a entrepreneur "is no more likely than in a developing country," says the study.) Also, fear of failure in the U.S. is increasing, something the authors suggest may be rooted in changing demographics: as the population ages it becomes more risk averse.

The study distinguishes between small business and entrepreneurship, with the authors arguing that the development of a "small number of extraordinary high-growth entrepreneurial ventures" – which it refers to as "gazelles" – is more important for job growth than "the creation of numerous tiny businesses."

Wrote Acs and Szerb: "The United States does not simply need more new businesses; it needs more highly productive ventures."

Inc. contributing editor Courtney Rubin was for five years a London-based staff writer for People magazine. Rubin, a former senior writer for Washingtonian magazine, has written for the New York Times magazine, Time, Marie Claire, and other publications. She is the author of The Weight-Loss Diaries.